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Web-Based Microfinancing

The idea of microfinancing — small-scale loans to the entrepreneurial-minded poor — reached the front page this fall when the Bangladeshi economist Muhammad Yunus and his Grameen Bank won the Nobel Peace Prize. But now the San Francisco-based nonprofit Kiva.org may have taken the idea a step further: with just a few clicks of the mouse, most everyone can become a microfinancier. At Kiva.org, a schoolteacher in Kansas can partner with an expert seamstress in countries like Kenya, Mexico and Ecuador to jump-start a tailor shop.

The founders Matthew Flannery, a Stanford graduate, and his wife, Jessica Flannery, a Stanford M.B.A. candidate, came up with the idea for Kiva, which means “unity” in Swahili, after spending time in East Africa. They noticed that many people there had no access to affordable credit. By contrast, Kiva.org offers loans to handpicked microfinance institutions at zero percent interest. These microfinance institutions, in turn, screen local applicants and lend money to individuals at an average interest rate of about 19 percent, lower than the 35 percent worldwide average for microfinance loans.

On Kiva.org, a Web site that includes photos of loan recipients and stories about them, lenders can choose aspiring small-business owners and make their own loans. (The current average is about $70.) Since it went online last year, Kiva.org has worked with more than 20 microfinance institutions around the world and enabled more than $1 million in loans for more than 2,000 businesses. (Across the entire microfinance industry, recipients of loans meet their repayment obligations more than 95 percent of the time.)

Jessica Flannery says that one of the earliest small loans helped a Ugandan fish seller take a bus to the Nile River and buy fish for a fraction of the price she previously paid a distributor. “A $10 bus ticket,” Flannery notes, “separated her from vastly expanding her profit.”